Bhutan’s hamartia-financial discipline

Amidst burgeoning national debt, economists and voters call out for financial discipline and wiser spending spree no matter which political party comes to power

Bhutan and the Bhutanese lack financial discipline despite 80% of the entire population possessing bank accounts. This is the core message that economists are trying to communicate as the country gears for upgradation from the category of Least Developed Countries (LDCs), and is also on the brink of commencing the 13th plan.

Financial discipline is literally described as how well you are able to conform your spending and saving to the plans you have set to achieve your monetary goals. If all you earn is what you spend, then you lack financial discipline.

“I would rate Bhutan’s average financial discipline level at 2 on a scale of 5,” said Sanjeev Mehta, an economist with the Royal Thimphu College (RTC).

“In the absence of any adequate evidence, it would be difficult to comment on the Bhutanese financial prudence. However, the Royal Monetary Authority (RMA) initiated financial inclusion has started to pay off. About 80% of the households have bank account. Yet the rate of gross domestic savings has declined from 42% in 2012 to 14% in 2022. Household savings being the largest component of it also conveys that people are saving less.”

He said that although 80% people have a bank account, most bank accounts may have miniscule deposits. Saving is not a planned decision, but a residual outcome for most households. Household do not save much, and this could be due to higher propensity to consume, high income disparities, and a strong social protection system which is a substitute for savings. A strong community based social protection system has a tendency to develop moral hazard, especially in terms of promoting risky financial behavior. Many entrepreneurs do not distinguish between financial resources of their firm and their personal financial resources.

The election is knocking on the doors and the country’s external debt is soaring in the sky.  All the five political parties are hell bent on changing the curve by laying down stark emphasis on the country’s dwindling economy.

Their common agenda is to propel Bhutan towards achieving a Gross Domestic Product of USD 5 billion by 2029 and USD 10 billion by 2034. Irrespective of the party that assumes power, significant investments in job creation, the CSI industry, bolstering tourism and related sectors, as well as exploring the potential of artificial intelligence are part of their proposed agendas.

“Bhutan is living on borrowed money, the money which is not even invested wisely,” an economist with the Asian Development Bank (ADB) said. “No doubt the country’s external debt is so high.”

Economists say that even if the plans are overwhelming, it is achievable given that the country adheres to strict economic ecosystem. Economists point out that it is not at all that difficult as it commonly seems.

The situation is similar to a simple household where you stop unnecessary spending, living on borrowed money, buying a new car, spending too much on a home, misusing home equity, living paycheck to paycheck, and not investing for retirement.

He said that s lack of financial discipline is often evidenced by regular, unplanned spending. “It’s no surprise that undisciplined spending and impromptu purchases often result in unsustainable debt. To stop the cycle, you have to stop taking on new debt,” he added.

He reiterated that financial discipline enables to reach big goals faster than a scattershot savings plan. “Following your budget and sacrificing niceties such as a morning latte or costly new pair of running shoes could help you fulfill your financial dreams within a much shorter timeline than you once imagined.”

Economists point out that the most common problem which needs attention among the Bhutanese populace is the lack of financial literacy and discipline in managing expenses.

Efforts have been taken by the central bank and financial institutions (FIs) but financial indiscipline trenches still remain from where the money is draining out of government coffers.

“What we can do is instill financial discipline and saving trend to our youths from an early age so that the dividends can be reaped in manifolds,” a banker in Thimphu suggested. “This also goes for our aspiring political leaders who have grand visions and therefore, even grandeur expenses.”

Records show that politically motivated efforts have witnessed bleak results since the inception of democracy in 2008 with governments on a spending spree to fulfill immediate pledges while ignoring realistic and long term visions.

Voters, this time around, are also calling for leaders who can allocate national budgets and limited resources astutely in order to form a solid foundation for a disciplined financial economy.

“We have to ask ourselves where the money will come from before making promises like securing this and developing that, etc., Political parties can only procure loans and spend them within the bounds of their tenure. The tremors will be felt long after they are gone.”

Meanwhile, worried economists around the country assert that Bhutan should adopt cautious approaches while aligning needs and wants, in tandem with the spending capacity, so that the country can atleast bask on sustainable economic progress without drowning itself under the pile of gargantuan debts.

Tashi Namgyal from Thimphu